Credit Suisse analyst Ben Chaiken is initiating coverage of DraftKings but not getting carried away. He’s put a “neutral” rating on the heavily hyped stock, with a $48 price target that mirrors its recent trading range. “We believe there is a lot to like,” Chaiken writes, pointing to DraftKings’ sheer scale and the propensity of sports bettors to stick with a brand once they’ve tried it. He also cites the company’s “roots as a leader in daily fantasy sports that have resulted in first-mover advantages with branding, a targeted user base, and a scalable technology/regulatory platform.” That said, he is nonplussed by DKNG’s high valuation (7X sales) compared to its peers or to other Internet stocks. He fears that this may not be sustainable and “increasing competition in USSB/iGaming could elongate DKNG’s path to profitability.” Chaiken is somewhat skeptical of the number of states that will actually enact sports betting and Internet gambling, which obviously would be a headwind for DraftKings and its fellows.
“We believe DKNG’s premium multiple and stock performance (+181% since its public listing in April) reflect its position as the largest and most liquid pure-play in the fast-growing USSB/iGaming industry, acting more as a vehicle for investor sentiment/enthusiasm than closely reflecting fundamentals,” Chaiken writes. His cautious forecast of 2025 revenues for sports betting and Internet gaming respectively is $9.2 billion and $4.9 billion, making Chaiken more circumspect than his peers. He predicts that 10 more states will legalize sports betting (bringing the total to 36) and four more will sign on to i-gaming, for a total of nine.
